Question

NewTech purchases computer equipment for $154,000 to use in operating activities for the next four years. It estimates the equipment’s salvage value at $25,000.Required:Prepare a table showing depreciation and book value for each of the four years assuming double-declining-balance depreciation.

Answer 1

Answer:

Accumulated depreciation = $129,000

Net book value after years = Salvage value = $25,000

Explanation:

Note: See the attached excel file for the table showing depreciation and book value for each of the four years assuming double-declining-balance depreciation.

Double-declining-balance is a depreciation method in which an asset is depreciated at twice the rate of the straight line depreciation method.

For this question, the depreciation rate can be obtained as follows:

Straight line depreciation rate = 1 / Number of years of operating activities = 1 / 4 = 0.25, or 25%

This can be done as follows:

Double-declining depreciation rate = Straight line depreciation rate * 2 = 25% * 2 = 50%

The 50% double-declining depreciation rate is therefore used in the attached excel file table.

Note that there the depreciation expenses in Year 4 is zero because the asset has already been fully depreciated in year 3 since there is a salvage value of $25,000 that must be maintained at the end of Year 4.